An astonishing number of consumers were unaware that they had credit life insurance, which could have helped ease the burden of their repayments, says the Financial Sector Conduct Authority. And a worrying number fell for a range of scams – in particular, crypto.
Addressing a webinar on trends during Covid-19, South Africa’s financial sector watchdog said around 26% of consumers were unaware that they had insurance on their credit products, which they could have claimed against.
The lack of awareness is partly consumers’ fault – they are so eager to complete transactions that they sign documents without first reading the contents, then fail to place the contracts in safekeeping – and due to a lack of disclosure by the credit provider.
Caroline da Silva, divisional head of regulatory policy at the FSCA, says there are not appropriate disclosures at the point of sale: customers just want the product, they don’t read the terms properly.
“Credit life was a particularly important issue during the Covid crisis since customers could potentially have had protection on their policies, because of the mandatory credit on certain loans and a requirement by the National Credit Regulator that income protection be built into these loans, and not just retrenchment cover.
“The sad reality is that as many as 5 million customers may be unaware of their credit life insurance. Most would have bought it through store credit or taken on credit life through unsecured loans.”
She said while the financial sector responded positively during Covid to help their customers, through the Solidarity Fund, debt relief and premium holidays, intermediaries were affected by these measures and were unable to earn commissions, which has an impact on the sustainability of advice.
Business, interrupted
Insurers’ failure to pay business interruption (BI) claims received much attention in 2020 but Da Silva said only 3% of commercial clients had BI insurance policies in place, with contingency cover. “The life industry paid R230 billion in life insurance claims and benefits, so it wasn’t across the board that companies didn’t respond to the pandemic.”
The authority, she said, agreed with insurers that legal certainty on BI cover was required and would be guided by the outcome of the Financial Conduct Authority’s test case in the UK because “a lot of the policy wordings are similar to ours”.
In South Africa, two BI cases are headed for the Supreme Court this month: Cafe Chameleon v Guardrisk, and Ma-Afrika Hotels v Santam.
Until legal certainty is attained, the FSCA did not want customers to be devastated by the delays in payment so it negotiated with all the insurers to make interim payments. “Most of the insurers came to the party where they could. Some companies paid up to R1bn to their customers (Santam),” she noted.
Fit for purpose?
It’s not just about ensuring customers have a product that suits their needs, but that the products must suit their purpose.
“Do the products respond as customers anticipated? This is about ensuring products are simplified, easily understood, that their wording is clear, that the intentions are explicit, that companies are challenged where products create uncertainty, and this is going to drive a whole new shift in the advice space.”
The authority has stepped up its social media activities. Lyndwill Clarke, head of consumer education at the FSCA, says the industry, and the FSCA, have responded with “concerted efforts” to issue public warnings – as well as raising awareness and educating customers to not only help them spot scams but to better understand financial products and services.
“This extended to using digital platforms and technology to reach consumers – including the launch of the FSCA’s MyMoney Learning Series, accessible to all consumers at www. fscamymoney.co.za.”
Clarke says consumers need to realise that get-rich-quick schemes and anything to do with crypto, forex or platform is a scam. “We’re investigating a number, with warnings issued.”
Celebrating the good with the bad, the authority says the pandemic’s impact on economic activity has resulted in regulatory responses to balance the continued stability of balance sheets and the achievement of fair customer outcomes.
“The Twin Peaks approach in South Africa stood us in good stead for ensuring a co-ordinated response from financial sector regulators to the industry. Directives and measures provided to the industry had to be put into place to ensure customers are exposed to fair treatment,” it said.
Under the Twin Peaks model, two regulators – the FSCA and the Prudential Authority – were established. The latter maintains the stability of the financial system, while the former is responsible for market conduct and consumer protection.
The regulator said the sector’s operational resilience was put to the test and responded “impressively” by supporting customers and shifting rapidly to digitise services. It has also introduced banking partnerships with spaza shops; capital raising by insurers for SMEs to preserve jobs; and car insurers’ pay-as-you-drive options.
Financial distress among employers was a growing concern though, as contributions were declining. Retirement funds needed to embrace innovation and change to protect customers.
“A recent survey by the FSCA shows that in nearly 40% of active retirement funds, the employer was in some form of financial distress because the employer or employee, or both, had approached the fund to ask for a temporary suspension or reduction of retirement contributions.”
* Georgina Crouth is a consumer watchdog with serious bite. Write to her at [email protected] or tweet her @georginacrouth.